The comparison in the example
| $100k salary, 5 years | Novated lease | Car loan at 8% |
|---|---|---|
| $55,000 electric car | $66,600 | $91,320 |
| $40,000 petrol car | $72,488 | $81,321 |
Totals include running costs and, for the lease, the residual payout, so each ends with you owning the car. The petrol car's lease costs more than the EV's despite the cheaper car, because it pays FBT-cancelling contributions from after-tax pay and its fuel costs more.
Worked figures come from this calculator with: 2026-27 tax rates and Medicare levy, a five-year lease at 8.5% interest, the ATO minimum residual (28.13%), a $500 establishment fee and $15 monthly fee, $3,500 on-road costs, 15,000 km a year, NSW registration of $1,100 and insurance of $1,500, paid fortnightly. Your provider's rate and fees will differ; change them in the calculator.
Where the difference comes from
- Income tax: the pre-tax part of the lease saves your marginal rate plus 2% Medicare levy.
- GST: the lease saves GST on the car (up to $6,353 in 2026-27), the lease payments and the running costs. A loan pays GST on all of it.
- Interest: both charge interest. Lease rates are often a little higher than good car loan rates; enter the real rates.
- Fees: leases carry establishment and monthly fees; loans may have an establishment fee too.
- FBT: petrol cars pay part of the cost after tax under ECM, which shrinks the saving.
- The residual: a lease defers part of the car's cost to the end, paid after tax plus GST.
Risks that the numbers don't show
- Changing jobs: the lease stays with you; if your new employer won't package it, you pay it from after-tax income. See if you change jobs.
- Ending early: breaking a lease can cost thousands in payout and fees.
- Reportable benefits: for EVs, HELP repayments and income tests can be affected.
- Flexibility: with a loan you can sell the car any time and repay the loan.
Making a fair comparison
Use the same car price and running costs, and a loan term equal to the lease term. Get a written lease quote with the interest rate, residual and every fee; and a car loan quote with its comparison rate. Then enter both in the calculator above.
How a novated lease works
A novated lease is a three-way agreement between you, your employer and a finance company. The finance company leases you a car; your employer agrees to make the payments out of your salary for as long as you work there. Your employer also pays the running costs (fuel or charging, registration, insurance, servicing and tyres) from the same budget. Because these come out of your pay before tax, your taxable income falls, and because your employer is registered for GST, it claims back the GST on the car and its running costs. At the end of the lease you pay a lump sum, the residual, to own the car, or you refinance or sell it.
The catch is fringe benefits tax (FBT). A car your employer pays for is a fringe benefit. For petrol and hybrid cars, providers cancel the FBT by having you pay part of the cost out of your after-tax pay: the employee contribution method (ECM). For eligible electric cars there is no FBT at all, so the whole cost can come out of pre-tax pay. That is why novated leases have become popular for electric cars.
What providers don't show, and how to read a quote
- The interest rate. Many quotes show only a weekly or fortnightly deduction. Ask for the interest rate, the amount financed and the residual in writing; with those, this calculator reproduces the lease payment.
- Fees. Establishment fees, monthly management fees and "budget" fees for running costs add up over five years. Enter them all.
- Running-cost budgets. Quotes often include generous fuel, tyre and servicing budgets that inflate the per-pay deduction. Unspent budgets are usually returned, but check how and when.
- Insurance and extras. Gap insurance, extended warranties and paint protection are often bundled. They are optional.
- The residual. It must be at least the ATO minimum for the term. A higher residual lowers your deductions but leaves more to pay at the end.
- Discounts on the car. Providers negotiate fleet prices, but compare the drive-away price with what a dealer would offer you directly.